Capital For Conservatives

To be a conservative is to want a vibrant, innovative economy. All else equal, presumably, in order to have such an innovative economy, you want to have risk-taking and risk-bearing capital. The problem with the global economy isn’t, per se, that the rich have a lot of money. It’s that the rich have a lot of money and, instead of investing it in rocket ships to the moon and dotcom ventures, almost all of them are instead investing it in government bonds and ultra-safe corporate bonds. With inflation at zero and no wealth tax, investing at 2% for no risk is very attractive. If there is inflation and/or a wealth tax, suddenly you have to seek it out bigger investments.

Looked at it very broadly, the conservative “diagnosis” would say something like this: for the broad middle class, what we usually think of as the components of “the good life”, i.e. housing, a job, affordable healthcare, higher education, and so on, are growing increasingly expensive–and in large part this is because of bad government regulation. This is also true of access to capital. As Piketty says, all else equal, we want to increase wealth mobility and access to capital.

Noting that Americans see Piketty as more left-wing than he sees himself, Yglesias points out that he actually wants to cut most Americans’ taxes:

Piketty’s big point about the United States is that we actually do engage in substantial wealth taxation in this country. We call it property taxes, and they’re primarily paid to state and local governments.

Total receipts amount to about 3 percent of national income. The burden of the tax falls largely on middle-class families, for whom a home is likely to be far and away the most valuable asset that they own. Rich people, of course, own expensive houses (sometimes two or three of them) but also accumulate considerable wealth in the stock market and elsewhere where, unlike homeowners’ equity, it can evade taxation.

Piketty also observes that the current property tax system is curiously innocent of the significance of debt. A homeowner is taxed on the face-value of his house, whether he owns it outright or owes more to the bank than the house is worth. “If you own a house worth $500,000 but you have a mortgage of $490,000 then your net wealth is $10,000,” he explains. “So in my system you would owe no tax.”

But Scott Sumner thinks we should measure inequality not by income or wealth, but rather by consumption:

[T]here are plenty of billionaires who splurge on things like 500-foot yachts. Now we are getting somewhere! The labor and materials that went into constructing that yacht could have produced 10,000 cars for average people. That sort of inequality is real. That’s what we (should) mean by “economic inequality.” That’s the way all of us economists were taught, but 99% of us seem to have forgotten what we learned about consumption. Consumption is what you should tax. Of course when we tried to do that a bunch of Democratic politicians who have apparently never heard of Bastiat said the luxury tax was a bad idea because it cost jobs in the yacht making industry. (I’m not joking.) Nor are they willing to cut back on intellectual property protections for companies like Disney.